Corporate Political Contributions and Stock Returns

Political contributions seem to be correlated with future stock returns.

Abstract (Via Harvard Law & SSRN )

We develop a new and comprehensive database of firm-level contributions to U.S. political campaigns from 1979 to 2004. We construct variables that measure the extent of firm support for candidates. We find that these measures are positively and significantly correlated with the cross-section of future returns. The effect is strongest for firms that support a greater number of candidates which hold office in the same state that the firm is based. In addition, there are stronger effects for firms whose contributions are slanted toward House candidates and Democrats.

Additional Excerpt (Via Harvard Law & SSRN)

Our finding of an incremental effect for firms supporting House candidates may be related to the constitutional provision that revenue and appropriations bills must originate in the House. Thus, firms may find that it is more expedient to support House members, where potential firm value increasing actions may be more suitably created. We also split our sample along political party lines. The FEC data show that Republican candidates typically receive higher total dollar contributions than do Democrats and that Republican candidates’ contributions come from a larger number of supporting firms than do Democrat candidates’ contributions. However, despite the fact that Republicans receive more contributions than Democrats, we find an incremental contribution effect for Democrats after controlling for Republican effect, but do not find an incremental Republican effect after controlling for the Democrat effect.

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18. August 2009 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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